The Ohio State University

LAW JOURNALVOLUME 6 DECEMBER, 1939 NUMBER 1

THE CONTRACT OF SALEIN LATIN AMERICA

HENRY PAINE CRAWFORD t

The contract of sale in civil law-more commonly referredto as purchase and sale'--is defined in the civil codes of Italyand Venezuela as "a contract by which one person binds himselfto give a thing and another to pay the price."2

Brazil describes it in its Code of Commerce: The mercantilecontract of purchase and sale is perfect and concluded as soonas the purchaser and the seller are in accord as to the thing,the price and the conditions, and from that moment neither ofthe parties may repent (withdraw) without the consent of theother even though the thing has not been delivered nor theprice paid. It is understood, in conditional sales, that the con-tract is not deemed perfect until the condition has beenfulfilled.'

t Member of the bars of the District of Columbia, Georgia, and Califor-nia; Chief, Latin American Legal Section, Division of Commercial Laws,Bureau of Foreign and Domestic Commerce. For other writings by the sameauthor, see Tulane Law Review, vols. X, XI, XII, XIII, and XIV; Journal ofthe District of Columbia Bar Association, 1937; Handbook of Latin AmericanStudies, Harvard University Press, 1936, 1937, and 1938.

'Spanish, compraventa; Portuguese, compra e venda; Italian, vendita.2-Art. 1513, Civil Code, Venezuela, i92Z; art. 1447, Civil Code, Fran-

chi, Milan, 1936. Cf., Clark v. Gault, 77 Ohio St. 497 (19o8): A sale is acontract founded on a money consideration by which the absolute or generalproperty in the subj ect of the sale is transferred from the seller to the buyer.

a Art. 191, Commercial Code, Bevilaqua, Rio de Janeiro, 1932. See also,art. 450, Code of Commerce, Argentina, Lajouane, Buenos Aires, 1932.

I

LAW JOUkNAL-bE EMBER, 1939The case law of Mexico, as developed by the Suprema

Corte de Jisticia, declares that the contract of purchase and saleis perfect when the thing and its price are specified, and mutualconsent is manifested. Once perfected, the parties remainlegally bound to its performance, the vendor to deliver thething sold, in the place or to the person designated, and thebuyer to pay the price stipulated.4

WHAT CONSTITUTES A COMMERCIAL SALE?

Whether a transaction be civil or commercial will deter-mine whether a controversy arising therefrom is to be decidedaccording to the rules of the civil or commercial code. In somecases, the effect might be fatal respecting the injured party.For example, in Cuba, actions relating to the possession ofpersonalty are barred in six years under the Civil Code (Arts.1955, 1962), whereas the same type of action under the Codeof Commerce against the security of an intermediary agent willbe barred in six months from the date of receipt of the com-mercial securities or funds delivered to him for business pur-poses (Art. 946). Again, in sales of realty or personalty, theaction arising from differences in quantity or quality is barredin six months under the Civil Code (Arts. 1469-1472, 1490),yet the same type of action under the Code of Commerce mustbe brought within four days if the merchandise is receivedpacked (Art. 336), or within thirty days after receipt whenfounded upon hidden defects (Art. 342).'

According to one Mexican decision, the contract of purchaseand sale, as to its civil and commercial effects, should be ana-lyzed in accordance with the precepts of the Civil Code andCode of Commerce. In the first case, the contract is concluded

' Lopez Hermanos, x6 Semanario Judicial, Quinta Epoca 653 (March z4,1925).

1 Cf., art. 1568, Civil Code, Venezuela; redhibitory actions for defects,realty one year, personalty three months; Code of Commerce, actions for appar-ent defects, two days after receipt; for hidden defects, two days after discov-ery provided buyer not guilty of "lack of diligence"; when goods packed,eight days (art. 153).

CONTRACT OF SALE 3

when the contracting parties have placed themselves in accordrespecting the thing and the price; in the second (or commer-cial), the sale is taken as concluded from the precise moment inwhich the merchandise leaves the power of the vendor to bedelivered to the purchaser.'

While this may serve to indicate a distinction between thetwo types of contract, it by no means determines what consti-tutes a civil or commercial contract of sale. The true test iswhether the subject matter of the sale is intended for use orconsumption by the purchaser, or whether it is intended forresale at a profit.'

Spain offers one of the most logical and succinct definitionsof what constitutes a mercantile contract of purchase and sale(compraventa mercantil):

The purchase and sale of movable things for the purpose of resellingthem, either in the same form in which they were bought, or in anotherdifferent form, with the intention of profiting in the resale, shall bemercantile.'

According to the case law of the Supreme Court of Spain,the essence of this type of contract is the animus or intentionwith which it was perfected. Hence, if it was the intention ofthe purchaser to profit by the resale of the subject matter, eventhough he may have applied to his own use part of the mov-able things acquired, it is none the less a mercantile contract ofsale in its entirety. On the other hand, if the purchaser didnot have such an intention, the resale of the remainder doesnot take away the character of an ordinary or common contracteven though he may have obtained a profit.9

o Fernando Dosal & Cia., 15 Semanario Judicial, Quinta Epoca 1i45(November 8, 1924).

7This appears to be the test even when the subject matter of the contractis real property if bought to resell for gain. See notes 9, 1o, and i i, infra.Further, the writer finds no distinction between wholesale and retail sales inthis connection. Merchants are defined simply as "those who, having legalcapacity to exercise commerce, dedicate themselves to it habitually, (and)mercantile or industrial companies which shall be constituted in accord withthis Code." (Art. i, Code of Commerce, Betancourt, zd ed., Habana, 1917.)

8 Art. 325, Code of Commerce, Spain, 1885.'Sentencia, June 3, 1898, Supreme Court of Spain. Cuban code law

4 LAW JOURNAL- DECEMBER, 1939

Without doubt the increasing importance of purchases ofland for the purpose of reselling it in small lots or after theerection of buildings has influenced contemporary Spanish lawto depart from a rigid interpretation as to what may or maynot constitute a mercantile contract of purchase and sale, leav-ing the courts at liberty to classify contracts as either civil orcommercial, according to the circumstances. 0

That the mercantile contract of purchase and sale is recog-nized in Mexico in respect of real property seems dear fromthe case law of the Supreme Court, although in order that thecompraventa mercantil may exist as to real property (bienesrdices) it is required that the contract be concluded for thepurpose of commercial speculation. If this intention is notdeducible "in a clear and precise manner" from the contractitself, it becomes necessary to adduce other proof to show themercantile character of the instrument.1'

Inversely, it is important to know what does not constitutea commercial sale. As a general rule, noncommercial sales maybe grouped into four classes: (i) Purchases of things intendedfor use or consumption, (2) sales by the owners of crops or thenatural increase of cattle, or payment in kind under certain

follows Spanish case law in practically the same text (art. 325, Code of Com-merce, Betancourt, 2d ed., Habana, 1917).

10 See footnote to art. 325, Code of Commerce, Spain, 1885, p. 177;

also, Mora, Vda. de Sosa, 26 Semanario Judicial, Quinta Epoca 155 (May 6,1929), Supreme Court of Mexico, dealing with the rights of the parties undera nonformalized contract of purchase and sale of real property.

11 Gabriel Siller, 22 Semanario Judicial, Quinta Epoca 685 (March 24,i929). Author's note: In relying upon case law (stare decisis) as developedby the Supreme Court of Mexico, it must be remembered that five concordantand consecutive decisions of the Supreme Court of Justice in chambers, con-curred in by at least four justices, or an equal number of judgments by thesame court en bane, which have been approved by at least eleven members, arerequired to constitute a legal precedent. (Art. 193, Ley de Amparo, Decem-ber 30, 1935). Due to obvious limitations of time and space, the writer hasnot attempted to cite every case in point, and although in several instancesmore than one decision on the same question has been found, he is not pre-pared to state that five decisions do or do not exist respecting every pointraised. No research was made in Mexican case law prior to 1917, the date ofthe present Mexican Federal Constitution.

CONTRACT OF SALE S

circumstances, (3) sales by artisans of their own products madein their own shops, and (4) the resale by any person not amerchant of the remainder of commodities which he has accu-mulated for his own consumption." Argentina adds a fifth-the purchase of real property and its movable accessories," andin Venezuela the insurance of things not in commerce, as wellas life insurance, is an act of commerce with respect to theinsurer only."4

WHEN DOES TITLE PASS?

This question is answered by the long article describing thesale in Brazilian commercial law-as soon as there is a com-plete meeting of the minds-but it does not say precisely, inso many words, that title has actually passed.'" The civil codesof Italy and Venezuela, however, leave no doubt as to thetransfer of ownership:

The sale is perfect between the parties, and the buyer acquires thetitle with respect to the seller as soon as they are agreed upon the thingand the price, even though delivery of the thing has not been made,nor the price paid.'"

While a similar rule is inferable from Article 2249 of theMexican Civil Code, again it is not actually stated. However,the article seems in harmony with the doctrine in the Lopez

'2 Art. 326, Code of Commerce, Spain, 1 885; Venezuela, art. 5, Code of

Commerce, 1919." Art. 452, Code of Commerce, Argentina, Lajouane, Buenos Aires,

193z."' Art. 6, Code of Commerce, Venezuela, 1919; see also, arts. 3, 4, 5

and 7 as to what does not constitute a mercantile contract of purchase and sale.However, if the act is commercial for one of the parties, all contracting partiesare subject to commercial law (Argentina, art. 7; Venezuela, art. z). Argen-tine courts have held that if the plaintiff merchant exercises an act of com-merce he should appear before a commercial court even though the defendantmight buy for his own consumption (Cam. Civ., t. 50, p. 179, Malagarriga,Codigo de Comercio Comentado, 3 d ed., Buenos Aires, 19z7, vol. I, sec. 19,p. 29).

11 See note 3, supra; cf., see. 8398, Ohio G.C., likewise subject to crit-icism for indefiniteness.

"g Art. 1448, Civil Code, Franchi, Milan, 1936; art. 1514, Civil Code,Venezuela, 1922.

6 LAW JOURNAL- DECEMBER, 1939

Hermanos case"r to the effect that the contract of purchase andsale is perfect when the thing sold and its price are specified,and mutual consent is manifested.

SALES BY SAMPLES

If the sale has been made by samples or on the basis of acertain quality generally recognized in commerce, the buyermay not refuse to accept the things contracted for if they arein accord with the sample or the quality specified in the con-tract. In case the buyer refuses to accept them, experts will beappointed by both parties to decide whether the goods shouldor should not be accepted. If the experts declare in the affirm-ative, the sale is considered consummated; if to the contrary,the contract is rescinded without prejudice to the claims of thebuyer for damages. 8

However, in purchases of goods not in sight, and whichcannot be classified by a determined quality generally recog-nized in commerce, it is understood, as a matter of law, thatthe buyer reserves the right to examine them and to rescindfreely the contract if the goods are not satisfactory. The buyeralso has the right of rescission if, by express provisions, he hasreserved the right to try or test the merchandise (Art. 328)." 9

DELIVERY

If the seller fails to deliver the things sold within the timespecified, the buyer may demand performance or rescission ofthe contract with full indemnity in either case for the damagescaused by the delay (Art. 329). In contracts which stipulate a

17 See note 4, supra. Note: The Lopez decision refers to a mercantilecontract of sale.

"'Art. 327, Code of Commerce, Betancourt, 2d ed., Habana, 1917;

Mexico, 373; Spain, 327; Chile, 435; Argentina, 456. Hereafter, referencesto the Cuban Code of Commerce will be given in parentheses in the text, whilereferences to comparative legislation will be given in the footnotes. The num-ber following the name of the country indicates the corresponding article ofits code of commerce.

'" Mexico, 374; Spain, 3 z 8; Chile, 13 0, 131 ; Argentina, 455 ; Italy, 6 1.Cf., sec. 8396, Ohio G.C., sale by sample.

CONTRACT OF SALE 7

fixed quantity for delivery within a fixed period of time, thebuyer is not obliged to accept a part, even under the promiseof delivery of the rest. But if he accepts partial delivery, thesale is consummated with respect to the things received, savingthe right of the buyer to order the performance of the contractas to the remainder, or its rescission in accordance with the pre-ceding article (Art. 330). -0'

Loss OR DETERIORATION

The loss or deterioration of the subject matter of the con-tract before its delivery by an unforeseen accident or withoutnegligence on the part of the seller, enables the buyer torescind the contract, except where the seller has become adepositary (bailee) of the merchandise in accordance witharticle 339, infra, in which case the liability of the seller is lim-ited to that arising from the contract of deposit (Art. 33).The latter is similar to our bailment. When the buyer, withoutjust cause, refuses to accept the things purchased, the sellermay demand performance or rescission of the contract, deposit-ing the subject matter judicially in the first case. The judicialdeposit may also be utilized by the seller whenever the buyerdelays taking charge of the merchandise. In such cases, theexpenses originating from the deposit will run for the accountof the party at fault (Art. 332). -1

RIsK OF THE BUYER

Under Cuban law, the damages and shrinkage of the sub-ject matter after the contract has been perfected and the sellerhas the goods at the disposal of the buyer, in the place and at

20 Mexico, 375; Spain, 330; Chile, 157; Argentina, 468; cf., secs. 8424,

8425 Ohio G.C. See also, Lopez Hermanos, 16 Semanario Judicial, QuintaEpoca 653 (March 24, 1925): In order that the virtual delivery of the thing,old be taken as complete, it is necessary that the buyer acknowledge that themerchandise remains at his disposal.

"" Mexico, 377; Spain, 331, 333, 334; Chile, I42; Italy, 66, 68. Thejudicial deposit in civil law is equivalent to the common law procedure ofplacing the thing litigated in the custody of the court.

8 LAW JOURNAL- DECEMBER, 1939

the time agreed upon, run for the account of the buyer exceptin cases of fraud or negligence (Art. 333)Y

RISK OF THE SELLER

On the other hand, the damages and shrinkage which themerchandise may suffer, even by a fortuitous happening (casofortito), run for the account of the seller (I) if the sale hasbeen made according to number, weight or measure, or wherethe thing sold is not certain and determined by marks or signswhich identify it; (2) if, by express agreement or commercialusage, taking into consideration the nature of the thing sold,the buyer has the right to inspect or examine it beforehand;or (3) if the contract contains the provision that delivery willnot be made until the thing sold acquires the conditions stipu-lated (Art. 334). In any case, if the things sold perish ordeteriorate while they are under the control of the seller, thelatter must return to the buyer the part of the price alreadyreceived (Art. 335)23

EXPENSES OF DELIVERY

If a fixed period for the delivery of the things sold has notbeen stipulated, the seller must have them at the disposal ofthe buyer within 24 hours after the conclusion of the contract(Art. 337). The expenses of delivery in commercial sales runfor the account of the seller until the goods are placed, weighedor measured, at the disposal of the buyer, unless an expressagreement to the contrary exists. However, the expenses of

22 Mexico, 378; Chile, 143, 149, 150; Argentina, 463, 465. See also,

Lopez Hermanos, note 4: The losses, damages and shrinkage which the mer-chandise sold may suffer will be for the account of the buyer if the thing hasbeen delivered, and for the account of the seller if delivery has not been made.

23 Mexico, 377; Spain, 331, 333, 334; Chile, 147, 143; Italy, 61, 66.The rule regarding things which have perished or deteriorated appears to begeneral; the Argentine Code declares that when the lack of the delivery of theeffects sold is due to the fact that they have perished or have deteriorated byunforeseen accidents, without blame of the seller, all responsibility ceases onthe part of the latter, and the contract remains rescinded in law, the pricebeing returned to the buyer (art. 467, Corn.).

CONTRACT OF SALE 9

their receipt or extraction outside of the place of delivery runfor the account of the buyer (Art. 338).24

PAYM ENT-DEPOSIT-VENDOR'S LIEN

As soon as the subject matter of the contract has beenplaced at the disposal of the buyer, and the latter has expressedhis satisfaction or the merchandise has been deposited judiciallyin the case provided for in Article 332, supra, the obligationarises on the part of the buyer to pay the price against accountrendered (al contado) or according to the time agreed uponwith the seller.2" The latter may thus be converted into adepositary of the things sold, and is liable for their custodyand conservation in accordance with the laws governing deposits(Art. 339).2" During the time the goods are in the possessionof the seller, even though in the nature of a deposit, he has apreference or seller's lien for the payment of the price againstany other creditor, with interest for the delay (Art. 340.)27 Inany event, delay in payment of the price places the buyer underthe obligation of paying legal interest on the amount owed theseller (Art. 34).2"

DEFECTS - STATUTE OF LIMITATIONS

The buyer who, at the time of receiving the thing sold, ex-amines it to his satisfaction, has no right of action for recoveryagainst the seller for a defect of quantity or quality. However,the buyer has his right of action against the seller for a defectin the quantity or quality of merchandise received in bales orpacked, provided he bring his action within four days after

24 Mexico, 379, 382; Spain, 33 z , 337, 338; Chile, 144, et seq.; Argen-

tina, 460, 461; Italy, 68; cf., sec. 8423, Ohio G.C.25 Cf., sec. 8422, Ohio G.C.211 Argentina, 464, 465.27 Mexico, 386; Spain, 340; Chile, 151; Argentina, 466.2, Mexico, 380; Spain, 341; Chile, 144, et seq. Delay constitutes an

obligation to pay interest upon the amount owing at the legal rate. See Arm-strong Packing Co., z3 Semanario Judicial, Quinta Epoca 933 (August 20,1928).

10 LAW JOURNAL- DECEMBER, 1939

date of receipt, and provided further, that the damage (averia)does not arise from a fortuitous happening (caso fortiiito), aninherent defect (vicio propio de la cosa), or fraud. In suchcases, the buyer may elect as to rescission or specific perform-ance, holding the seller liable for the damages caused by thedefects or shortages. Nevertheless, the seller may avoid sucha claim by insisting that the inspection for quantity and qualitybe made by the buyer in the act of delivery (Art. 336).2

Inherent Defects: The buyer who fails to file his claim forinherent or hidden defects (vicios internos) within thirty daysafter delivery loses all right of action to recover against theseller for this cause (Art. 342). However, the party who hasproceeded with malice or fraud must respond for the damagesthus caused, without prejudice to the corresponding criminalproceedings (Art. 344), and in every commercial sale, theseller is bound to respond to the buyer for his warranty of tide,peaceful possession, and against hidden or inherent defects(Art. 345). 30

PRICE

In Chile, there is no sale if the parties fail to agree on theprice or the manner of determining it; but if the thing soldshould be delivered, it is presumed that the parties have agreedupon the current price which the thing had as of the date and

2 Mexico, 383; Spain, 336, 342; Chile, 158, 159; Argentina, 473;Italy, 70; cf., Manton v. Perry, 9 Ohio C.C. (N.S.) 326, 328 (1908): Un-der an implied warranty of fitness, it is the duty of the buyer of goods tonotify the seller of any defective condition immediately upon discovery. Ifthe buyer, after full opportunity for inspection, retains goods and resellsthem, he has waived any claim he might have had for damages. See also, secs.8427, 8428, 8429, Ohio G.C.

30 Ibid. See also, Mexico, 384; Spain, 345; Chile, 154. In Ohio, thepurchaser has an option, in case of a breach of warranty, of terminating thecontract, and returning or tendering back all goods at the place where he hadreceived them from the seller, or he may retain the goods and sue for damagesfor the breach of the warranty. Strouse v. Schenck, 6 Ohio L. Abs. 443(I9z8). But where goods delivered under a contract of sale are retained andused after inspection or after a reasonable opportunity for inspection, anydefect in them is thereby waived. Bigalow Fruit Co. v. Huxley, 23 OhioC.C. (N.S.) 479, 481 (1912). See Sec. 8449, Ohio G.C.

CONTRACT OF SALE II

place of the contract. Where there is a diversity of prices at thesame time and place, the buyer will pay the average price (pre-cio mnedlo). This rule is applicable also in case the parties referto the price the thing may have at a time and place differentfrom the time and place of the contract. 1 Moreover, if thethird party to whom the fixing of the price has been entrustedfails to do so, whatever the reason may be, and the subject mat-ter has been delivered, the contract will be carried out by theone who had the thing the day the contract was concluded, andin case of a variation in prices, then at the average price. 3

However, those sums which are paid in commercial sales asearnest money (sefial) are always deemed a payment on accountof the price and as proof of ratification of the contract unless acontrary stipulation appears (Art. 343)."

LESI6N

In conformity with the thesis of the civil law contract ofpurchase and sale, commercial sales will not be subject to rescis-sion because of lesi6n (Art. 344.)3" The latter has a meaningpeculiarly its own, other than that usually ascribed to it in theordinary dictionary. It is believed that the nearest approach toa correct translation into English would be "partial failure ofconsideration." Lesi6n is defined by Escriche as "the damageor prejudice which is caused in contracts for a valuable consid-eration, and especially in purchases and sales, by not makingthem in their just price:" 5 There were two degrees of lesi6n

" Art. 139, Code of Commerce, Chile, 1865, official ed., 1937; cf.,

art. 142, Code of Commerce, Venezuela, 1919; also sec. 8389, Ohio G.C.:" Art. 140, Chile; cf., art. 142, Venezuela, sec. 8390, Ohio G.C., price

fixed by third person. The Chilean rule in the last sentence of this paragraphappears confusing. The writer interprets it to signify that "the one who hadthe thing the day the contract was concluded," if the vendor, must deliver atthe average price; if already delivered to the vendee, the latter must pay theaverage price.

M Mexico, 381; Spain, 34-3; Chile, 107-109; Argentina, 475.: Art. 385, Codigo de Comercio Reformado, Andrade, Mexico, 1936.3 Escriche, Diccionario de Legislaci6n y Jurisprudencia, Paris and Mex-

icO, 1920, p. 1 16o. Cf., Cuba, 344; Mexico, 385; Spain, 344; Chile, 1z6,

12 LAW JOURNAL -DECEMBER, 1939

under early Spanish law, lesi6t enorme and lesi6n enormfsima.The former is the degree of damage suffered by "having beendeceived in something less than the half of the just price"; thelatter, "in much more than the half of the just price.""

Lesion enorme was sufficient cause for rescission of the con-tract.3 In any event, lesi6n appears to operate in two ways-when the seller sells at a price greater than the fair value of thething, or when the buyer buys at price less than the fair value,provided deception be present."

Thus, lesi6n arises where a thing which "justly was worthten, had been sold for more than fifteen, or bought for less thanfive." "9 Upon proof of the lesi6n and the deceit (engafo), theinjured party may claim the return of the "excess of the justprice which the thing had at the time of the sale, or that therebe given back what is lacking up to this, or that the contract berescinded and annulled, each one taking what he gave to theother."4

38 Escriche, op. cit., p. ii 6o.37 Ibid. Whether the doctrine of lesi6n would operate to sustain rescission

under modern commercial law would necessarily be determined by the juris-prudence of the respective forum. In contemporary practice, the proper rem-edy, as a general rule, is an action for damages against the party guilty of"malice or fraud," without prejudice to criminal proceedings (Cuba, 344;Mexico, 385; Spain, 344-).

8Art. 1074, Civil Code, Spain, 1889, provides that partitions of aninheritance may be rescinded for cause of leskdn in more than the fourth part,taking into consideration the value of the things when adjudicated. Art. 1079denies rescission of the partition on the ground of lesdnv because of the mereomission of some of the objects of the inheritance, holding that the inheritanceshould be completed by adding to it the things omitted. The Supreme Courtof Spain has ruled that the omission, in partitions, even though it caused lesi6nin more than the fourth part, does not give rise to rescission in the absence ofthe requirement that such property be adjudicated. See Sentetzcia, Februaryz8, 193o, as reported by Fernandez, Diccionario de Jurisprudencia, Madrid,1930, vol. 3, P- 7.

'9 This example was taken from Escriche, op. cit., p. i i 6o.40 Ibid. It will be noted that the example abides by the more-or-less-than-

half variation, and seems analogous to the equitable precept against unjustenrichment.

CONTRACT OF SALE 13

BREACH OF WARRANTY

The alleged breach of an implied warranty as to fitness ina mercantile contract of sale was recently brought to the writer'sattention. We can select Mexico as the country for our ex-ample, its case and statute law being identical with that of thejurisdiction in which the claim arose.

We will assume that an American manufacturer has inMexico a mere sales representative without power to bind thecompany, all of whose orders are subject to approval andacceptance in the United States. As the result of his efforts thecompany receives an order by mail amounting to $22,0o0, andaccepts it at its home office in the United States. Under theterms of the contract payment is to be made upon delivery ofthe goods at a place of embarkation in the United States. Thematerial was selected from line drawings in a catalogue, andthe contract was fully performed by both parties as of June i,1939. Shortly after receipt of the material in Mexico, largeparts of it were resold to customers of the vendee.41

In September, after the material has been in use some threemonths, the Mexican importer declares it is defective as to fit-ness in comparison with other brands of similar products sellingthroughout the industry at approximately the same price, andthreatens to sue the American manufacturer before Mexicancourts to recover a part of the price sufficient to compensate forthe alleged defect in quality. The product in question does notcome packed or in bales and may be readily inspected. Theplaintiff42 also contends that the defendant is "doing business"in Mexico in the legal significance of the term, and is, therefore,subject to the Mexican income tax law.

Serious doubt is entertained as to the means by which itwould be possible for Mexican courts to exercise jurisdictionover the instant mercantile contract of purchase and sale. Inorder to decide this question it will be necessary to consider

41 Cf., Manton v. Perry, note z9, supra.42 The terms "plaintiff" and "defendant" are used arbitrarily to distin-

guish the parties; the suit has not yet been filed.

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(i) whether the action be civil or commercial, (2) real or per-sonal, and (3) the competency or jurisdiction of the courts. 3

Commercial Nature of the Action

Under the definition of the Mexican Code of Commerce,commercial actions are those which have for their purpose toventilate and decide controversies derived from acts of com-merce."' It is submitted without further discussion that thepresent controversy arises from a commercial transaction,"hence is a commercial action within the purview of the Code ofCommerce, at least as to the defendant company."

Personal Nature of the Action

By means of acciones reales one claims inheritances, realrights, or the declaration of release from real encumbrances.They are exercised against the person who has the thing in hispower.". The accidn personal is one which the plaintiff bringsin order to demand the performance of a personal obligation,or to claim from another person that the latter give, do, orcease doing all that to which he was obligated."5 From thesedefinitions it would appear that the personal action is the typewhich would be brought by the present plaintiff.4"

43 In the United States, it has been held as recently as February 14, I939,that service of summons and complaint upon a foreign corporation by deliver-ing a copy thereof to an officer of the corporation is not effective unless thecorporation is doing business within the state. Pioneer Utilities Corporation v.Scott-Newman Inc., z6 F. Supp. 616.

44 Art. io49, Codigo de Comercio Reformado, Andrade, Mexico, 1936.4s Arts. 4, 75, 76, Codigo de Comercio Reformado, Andrade, Mexico,

1936."6 Art. 1050, Codigo de Comercio Reformado, Andrade, Mexico, 1936.4 Art- 3, Codigo de Procedimientos Civiles, Santamaria, Mexico, 1934.48 Enjuiciamiento Civil, Manresa y Navarro, 5th ed., Madrid, 19z8, p.

Z46; cf., art. 25, Codigo de P. C., Santamaria, Mexico, 1934.4' The claim for damages and prejudices always signifies the exercise of

the personal action. Sentencia, January 7, 1931, Supreme Court of Spain.Cf., Genin v. Grier, io Ohio zIO (1840): In Ohio, personal actions may beprosecuted in any county where process can be served on the defendant. Seediscussion at pp. 212, 213, and first half of 214. Mr. Justice Hitchcock has(apparently without intention) drawn many of the distinctions existing be-tween the real and the personal action in civil law. See also, St. John v. Par-sons, 54 Ohio App. 420 (1936), in like vein.

CONTRACT OF SALE 15

Service of Summons and Jurisdiction

Having found authority upon which to base the conclusionthat the action contemplated is commercial in nature, it is essen-tial to investigate the competency of Mexican commercialcourts. In the first place, the initial service of summons inMexican commercial actions must be personal, although noticeof subsequent hearings in the same action may be served bypublication." Furthermore, a judgment which is rendered

without service of summons having been made upon the de-fendant with all legal formalities amounts to a violation of con-stitutional guaranties."' Consequently, it is difficult to conceiveof a valid service upon an unempowered nonlegal agent, suchas the sales representative described.

Under the previsions of Chapter VII (De las Competen-cias) of Book V (De los Juicios Mercantiles),"' whatever maybe the action, the court of the place which the debtor has desig-nated as the place of suit for payment, or the court of the placedesignated in the contract for the performance of the obliga-tion, will be preferred over any other court. 3 If neither desig-

nation has been made, the court of the domicile of the debtorwill be competent, whatever may be the action brought."

"' A,-isti de Argumedo, Maria de los Angeles, zo Semanario Judicial,Quinta Epoca 430 (February zi, 1927). For exceptions to the general rule,and for service of summons abroad, see art. io68, et seq., Codigo de ComercioReformado, Andrade, Mexico, 1936. However, such exceptions apparentlyprc, uppose a jurisdiction in rem, by stipulation of the parties, or where per-formance of the contract or the formal "place" of the contract is in Mexico(-ee art. 1107).

'M lrreno Terrazas Abel y coag., 16 Semanario Judicial, Quinta Epoca515 (March io, 1925), par. 2, art. 14, Constitution, Mexico.

"'Codigo de Comercio Reformado, Andrade, Mexico, 1936.Ib~idart- 1104. The competent court to take jurisdiction of the pro-

ccedings is that of the place of performance of the obligation. Sentencia,April 8, 1931, Supreme Court of Spain.

,,I Art. I so5, C. de C., Andrade. When considering mercantile actions,jurisdiction should be decided in accordance with the provisions of the Codeof Commerce, and the latter provides that when the place in which the debtoris to be sued for payment has not been designated, nor the place in which toperform the obligation, jurisdiction belongs to the court of the domicile ofthe debtor, whatever may be the action brought. Rivera, Carmen, 25 Semana-

16 LAW JOURNAL-DECEMBER, 1939

In the instant case, no designation of a place of suit forpayment could have been made, as payment was effected in theUnited States either in advance of or at the moment of deliveryin the United States, the place of performance would be shownby the contract itself or the mutual correspondence which evi-dences it,5" and in the absence of both designations, we wouldstill have the domicile of the defendant as the jurisdictionwithin which to bring the action."

SPANISH CASE LAW

Much of the comparative legislation cited in the MexicanCode of Commerce as footnotes to its articles is selected fromthe Spanish code, thus it may be inferred that Spanish case lawwould be persuasive in Mexico, although not necessarily bind-ing upon Mexican courts. With this thought in mind, we citethe case of D. J. P. v. D. E. R., decided by the Supreme Courtof Spain, August 5, 193oY

This was an action based upon the contract of compraventamercantil and was brought to recover the purchase price ofmerchandise shipped "for the account and at the risk of thepurchaser." Plaintiff filed his action before the court of LaBafieza, whereas defendant was a resident of Tuy. The defend-ant filed a plea to the jurisdiction (competencia por inhibitoria),alleging that in the absence of a written contract, as well as the

rio Judicial, Quinta Epoca 686 (September 5, 19z7). When competencyrefers to the jurisdiction of a mercantile action, the provisions which are to betaken into account to decide it are those of the Code of Commerce. Andressen,Luis, 23 Semanario Judicial, Quinta Epoca 370 (June i8, 1928).

" In accordance with the Mexican Code of Commerce, the court of theplace designated in the contract for the performance of the obligation will be

preferred over any other. Rafael Vega, 27 Semanario Judicial, Quinta Epoca335 (September 13, 1929).

50 Cf., Blair v. Newbegig, 65 Ohio St. 425, 439, 6z N.E. 1040 (1902):An obligation resting upon contract may be enforced in any jurisdiction whereservice may be had on the party.

57 Reported by Fernandez, Diccionario de Jurisprudencia, Madrid, Aug-

ust, 1930, p. 14. In reporting decisions of the Supreme Court of Spain, it isnot unusual for the Spanish reporter to refer to the parties by their initialsonly.

CONTRACT OF SALE 17

fact that the draft had been sent to Tuy, the action should havebeen filed against the defendant in Tuy, the court of his domi-cile. The merchandise was "invoiced in the station of LaBafieza."

Held: That upon the conclusion of a contract of purchaseand sale whereby the merchandise traveled at the risk and forthe account of the purchaser, and where payment was to bemade in La Baileza (the domicile of the plaintiff-vendor), it ismanifest that the court of La Bafieza is competent because thelatter is the place in which the obligation was to be performed.8

Furthermore, where delivery is made in the domicile ofthe vendor, the court of the latter place takes jurisdiction of asuit for payment of the price. The issue of a draft to collectthe price has no greater effect than the giving of facilities to thedebtor for the purpose of making good his debit. The fact thatthe sale was made by a traveling representative is not a circum-stance which may set aside the rule of competence."

Locus SOLUTIONIS

According to the facts upon which the present claim isbased, the obligation was performed wholly within the UnitedStates and nowhere in Mexico. The vendor accepted the orderin the United States, manufactured the merchandise in theUnited States, received payment in the United States, shippedthe merchandise to a point of embarkation in the United States,and there the merchandise was taken over by an agent of theplaintiff. From that point on, the merchandise traveledthrough Mexico "at the risk and for the account of" the buyeras his own merchandise, title already having passed, presum-ably at the time of payment."

SCf., art. 156, sec. II, Codigo de Procedimientos Civiles, Santamaria,Mexico, 1934.

" Sentencia, March 3, 1932, Supreme Court of Spain.° Cf., Hall v. Cordell, 142 U.S. ii6, 120 (1891): The law of the

place of performance must determine the rights of the parties unless otherwisestipulated.

i8 LAW JOURNAL- DECEMBER, 1939

As we have seen, the type of action involved is the personalaction. Again relying upon Spanish law as persuasive in Mex-ico, reference is made to the acci6n personal as described byManresa y Navarro. This class of action may be brought (i)before the court of the place where the obligation is to be per-formed, (2) before the court of the domicile of the defendant,or (3) before the court of the place of the contract. If the par-ties, upon entering into the contract, stipulate the place wherethe obligation is to be performed, they have tacitly agreed thatall of its incidences may likewise have effect in the same place,among them being the suit which may arise as to performance.It follows that the court of the latter place is competent to takejurisdiction and that it is competent with preference over anyother.6

The designation of the place in which the obligation is tobe performed is equivalent in civil law to a submission of theparties to the court of that place. When nothing has been stip-ulated in that regard, the plaintiff may elect between the courtof the domicile of the defendant and the court of the place ofthe contract. But in the last named instance, the court is com--petent only when the defendant is found in such place, eventhough accidentally, to the end that he may be and is thereserved 'with process. Without this circumstance, the court ofthe place of the contract may not take jurisdiction of the suit,and the plaintiff must have recourse to the court of the domicileof the defendant. 2

The foregoing theory of venue based on performance isstrong, and goes beyond ours. It actually lays the venue of theaction at the place of performance in preference to any other

61 Manresa y Navarro, op. cit., p. 248. Cf., Banco de Londres y Mexico,

13 Semanario Judicial, Quinta Epoca 735 (October 13, 1923): The Codeof Commerce provides that whatever the nature of the proceedings may be,the court of the place designated in the contract for the performance of theobligation will be preferred over any other court. Also, Pan-American Securi-ties Corporation v. Fried. Krupp Aktiengesellschaft, 6 N.Y.S. (2d) 993, IOOO(1938): All matters connected with the performance of a contract are regu-lated by the law of the place where the contract by its terms is to be performed.

62 Manresa y Navarro, op. cit., p. 249.

CONTRACT OF SALE 19

forum, irrespective of the domicile of the defendant, whereasour procedure permits an obligation resting upon contract to beenforced in any jurisdiction where service may be had on theparty," although we presume to apply the law of the place ofperformance." The civil law method is the simpler of the two.Where the place of performance is stipulated, either partyknows where he may bring his action; he does not have to pur-sue a defendant, who, under the theory just described, submitshimself to the jurisdiction of the place of performance when hesigns the contract.

Locus CONTRACTUS

The study of this field of the law of contracts embraces twoquestions: Where was the contract perfected and when was thecontract perfected? That a forensic controversy regarding bothtime and place has existed for many years is obvious from thewealth of material available. In civil law, the question of timeand place of perfection of a mercantile contract rests upon fourtheories," among them the theories of cognici6n and expedici6n.The former insists that the contract is not completed until theacceptance of the offeree is brought to the knowledge of theofferor; the second maintains that the contract is completed assoon as the acceptance is despatched.

By the gceat weight of English and American authorities,

, Blair v. Newbegin, note 56, sura.Monahan v. N. 1'. Life Ins. Co., z6 F. Supp. 859, 86i (1939): The

contracts were made in the state of Arkansas, to be performed in the state ofNew York, and the suits were instituted in the state of Oklahoma, this courthaving jurisdiction of the parties. But the lex fori determines how and whenthe law of the place of performance is to be applied (see p. 86z).

,, The four theories may be outlined in the following form: I-Informa-ci~g or cognicibn-the acceptance must be brought to the knowledge of theofferor. II-agifestaci6n-(a) theory of declaration-the contract is per-fect at the moment in which the acceptance is exteriorized in any form;(b) theory of expediciin-requires, apart from the manifestation of the accept-ance, that the latter has been directed to the offeror even when it does notrequire that it has arrived in his hands; (c) theory of recepci n-accordingto this, it is required that the material document containing the acceptance hasarrived in the hands of the offeror. See Gay de Montelli, Tratado de laLegislaci6n Comercial Espafiola, Barcelona, 1930, vol. I, pp. 204, 205.

20 LAW JOURNAL-DECEMBER, 1939

acceptance, if made by mail or telegraph, is operative from themoment its transmission begins,6" and a contract made by cor-respondence is made at the place where the letter of acceptanceis posted."' Stated in slightly different terminology, the placeat which a contract is made is the place at which the offer isaccepted."

That a conflict between the two civil law theories mentionedabove has existed even as to the respective codes of the samecountry is evident from a study of Spanish and Mexican civiland commercial law. The Spanish Civil Code of 1889 followsthe theory of cognici6n; the acceptance made by letter does notbind the person making the offer until it is brought to hisknowledge. In such cases, the contract is presumed to havebeen perfected in the place in which the offer was made.6" Onthe other hand, the Code of Commerce of 1885 of the samecountry declares that mercantile contracts celebrated by cor-respondence are perfect "as soon as it may be answered accept-ing the proposal" (desde que se conteste aceptando la pro pu-esta), ° thus following the theory of expedici6n.7 '

The same conflict obtains in the Mexican codes. Like theSpanish Civil Code of 1889, the Mexican Civil Code of 1928provides that the contract is formed at the moment in which theproponent receives the acceptance," whereas the Mexican Code

66 Page, The Law of Contracts, 2d ed., 192o, vol. I, sec. 199, p. 296;

sec. 215, p. 317. In Ohio, an assignment was complete and effectual to passtitle to the assignee from the time the deed was placed in the post office asagainst subsequent attaching creditors. Johnson v. Sharp, 31 Ohio St. 611(1877).

67 Page, op. cit., sec. 214, p. 317. Under New York law a contract ismade at the time and place where the final act necessary for its formation isdone. Cray v. Hegarty, 27 F. Supp. 93, 96 (1939)-

6 Page, op. Cit., sec. 214, p. 317. It is well settled that a contract is madeat the place where the letter of acceptance is mailed, such being the placewhere the last act necessary to the formation of the contract is performed.C. H. Parker Co. v. Exeter Refiiing Co., 79 Pac. (ad) (Cal.) 1114, 1115(1938)-

69 Art. iz6?, Spanish Civil Code, 1889.70 Art. 54, Spanish Code of Commerce, I 885.71 As discussed by Gay de Montelli, op. cit., p. 204, et sey.72 Art. 1807, Mexican Civil Code, 1928.

CONTRACT OF SALE 21

of Commerce holds to the theory of expedici6n appearing in theSpanish Code of Commerce of I885, and employs identicallythe same text-desde que se conteste aceptando la propuesta. 3

This raises a question of law, that is, whether civil or commer-cial law is applicable.

Many commercial codes provide that in those cases whichare not governed by the rules of commercial law, the provisionsof the civil code will be applied.74 This, however, is not true ofthe Mexican Code of Commerce, which expressly declares that,"in the absence of provisions of this Code, those of the commonlaw shall be applicable to acts of commerce."'' Therefore, wefind ourselves restricted to the Code of Commerce and the com-mon law for an interpretation of the commercial legislation ofMexico."

The same rule, slightly enlarged, obtains in the SpanishCode of Commerce of i885. 7 In contemplation of these rules,the conclusion follows that the provisions of the Mexican Codeof Commerce will prevail in the instant case of a mercantilecontract of purchase and sale, there being no "absence of pro-visions" which would necessitate turning to the Civil Code orthe common law for a guiding rule. Consequently, the theoryof expedici6n will be the basis for determining the time andthe place of the contract.

' Art. So, Codigo de Comercio Reformado, Andrade, Mexico, 1936.7-1 Art. i, Titulo Preliminar, and art. 207, Argentine Code of Commerce,

1932 edition; art. 8, Venezuelan Code of Commerce, I9i9.7' Art. z, Codigo etc., Andrade, Mexico, 1936.7'As exceptions to the general rule, the provisions of the civil law, with

the modifications and restrictions of the Code of Commerce, will be applicableto acts of commerce respecting capacity of the parties, and the exceptions andcaus: which rescind or invalidate contracts. See art. 8I, Codigo de ComercioReformado, Andrade, Mexico, 1936. In order that the common law beapplied to mercantile transactions it is necessary that a provision for the casebe lacking in the Code of Commerce, that is to say, when dealing with a mer-cantile matter it leaves it without a complement. In general terms, the civillaw' is applicable to acts of commerce when the matter, by its nature, does notfit into the terms of commercial law. Compaiiia Minera de Naica, 8 Sema-nario Judicial, Quinta Epoca 50, 53 (January 6, 19z).

77 Art z, Spanish Code of Commerce, iS85. See also, the comments byLorenzo Benito in his Manual de Derecho Mercantil, 3d ed., Madrid, 1924,vol. a, secs. I188, 1189, pp. z42, Z43; sec. 1197, p. 247.

'22 LAW JOURNAL - DECEMBER) 1939

Thus, in Mexican commercial law a mercantile contract isper fect as soon as the offer is accepted (answered) by theofferee, and the perfection of the contract is not delayed untilthe answer reaches the offeror, but takes place as soon as theanswer is despatched by letter or telegram."' The time atwhich the contractual obligation is born is the date of despatchof the acceptance by the offeree, and not the date of its receiptby the offeror. If a Mexican buyer writes to an Americanmanufacturer, extending an offer to purchase, the contract isperfect as soon as the American manufacturer posts his letterof acceptance, and the "place" of such a mercantile contractwould be within the United States.Ya

MEXICAN STATUTE OF LIMITATIONS

A legal principle of importance in the present case remainsto be discussed briefly-the time limit within which claims forapparent or hidden defects may be made. Article 383 of theMexican Code of Commerce provides that

The purchaser who, within five days from receipt of the merchan-dise fails to present his claim to the vendor in writing for deficiencies ofquality or quantity, or who, within thirty days from date of receipt, failsto claim for hidden defects (vcios internos), loses his right of actionand his right to recover against the vendor for such causes.

This is interpreted and sustained by the Supreme Court ofMexico in the Rawlings case:

When no claim has been filed within due time for deficiencies of

78 Art. 8o, Codigo de Comercio Reformado, Andrade, Mexico, 1936. A

telegram will produce a binding effect between the parties only when thismeans has been admitted previously in writing, and provided that the tele-grams contain the conventional signs previously agreed upon by the parties.

78a The following decisions of the Supreme Court of Mexico would seem

to substantiate these conclusions: Ramriez v. Elorduy, zo Semanario Judicial,Quinta Epoca 365, 368 (February 12, 1927); Juan Garcia Ruiz v. JoseMaria Zubirin, 14 Semanario Judicial, Quinta Epoca 1481, 1493, 1494(May z, 19z4) ; Mier v. Roman, 19 Semanario Judicial, Quinta Epoca 68,7' (July 13, 1926); Sociedad Francisco Beriscin, iS Semanario Judicial,Quinta Epoca 489, 490, 493 (March 6, i926).

CONTRACT OF SALE 23

quality or quantity, the presumption exists in favor of the vendor thatthe order was filled correctly."M

The Gornez decision is possibly more inclusive in its rul-ings. In addition to giving the substantial requirements of thecontract of comnpraventa, it lays down the following principlesrelative to a sale by samples or standard qualities :7a

The purchase and sale which is made according to samples andqualities of merchandise, determined and known in commerce, will beheld perfect by the mere consent of the parties, and the buyer who doesnot claim in due time for deficiencies of quality or quantity of the mer-chandise or the hidden defects of the same, will lose all action and rightto recover against the vendor for such causes, and when he does notmake such a claim, he must be deemed satisfied with the merchandisepurchased.

OFFEROR AND OFFEREE

Who the offeror is in the present case can be determinedonly as a question of fact. If the plaintiff made the initial ad-vance, offering so much money for the merchandise, then theplaintiff is the offeror. If the reverse is true, that is, if theAmerican manufacturer offered to sell the Mexican importerso much material at such and such a price, then the manufac-turer is the offeror. Mere inquiry on the part of the importeras to terms and conditions would not constitute a valid offer.

Although the identity of the offeror might operate tochange the "place" of the contract, this would seem to havelittle material effect, in view of the attendant circumstances,upon the rights or remedies of the parties, inasmuch as the

7R l jzsjs Madzu.facturizg Co., 33 Semanario Judicial, Quinta Epoca1637, 163 8, 1640, 1641, 1642 (October 26, 1931). Also, the Code of Com-mcrcu ordrs that the terms fixed for the exercise of actions proceeding frommercantile acts shill be fatal. Banco Occidental de Mexico, z5 SemanarioJudicial, Quinta Epoca 290 (January 24, 1929). In treating of mercantileacts, prescription should be governed by the Code of Commerce, not by theprovisions of the common law, and in conformity with the former, ten yearsarc needed for the lapsing of mercantile obligations, except when the said codeindicates a shorter period. Leay, Renj, 22 Semanario Judicial, Quinta Epocag16, SiS (March 16, 19z8).

79, Gomez, Pedro, 13 Semanario Judicial, Quinta Epoca io86 (Decem-ber io, 1923).

24 LAW JOURNAL-DECEMBER, 1939

place of performance was in the United States, and the pro-posed defendant was not and is not legally found in Mexico.

WHAT CONSTITUTES "DOING BUSINESS"

For purposes of the income tax law, the Mexican Govern-ment has expressly ruled that

When the agent is not a representative with juridical power to bindhis principal, but (is) what is called a simple messenger (nuncio) indoctrine, and the power to decide upon the acceptance of the order isreserved to the home office abroad, the contract is not to be understoodas concluded in the Republic, but in the place of the domicile of thehome office.8°

A study of the American decisions mentioned in the foot-note below will disclose that they are practically identical intheory and principle with the ruling of the Mexican Govern-ment cited immediately above. The conclusion seems properthat Mexican and American law is in agreement in this par-ticular.8

80 See Circular No. 211-8-ioo relativa a la debida interpretaci6n del

articulo 14. de la Ley del Impuesto Sobre La Renta, Diario Oficial No. z2,Mexico, June 7, 1939. It will be noted that this ruling is based directly onarticle 8o of the Mexican Code of Commerce.

sl Coblentz & Logsdon v. Powell, 148 Ark. 151, 229 S.W. 25, 26(1921); Dennison Mfg. Co. v. Wright, 1;6 Ga. 789, 120 S.E. 120 (1923);Am. Contractor Pub. Co. v. Michael Nocenti Co., 139 N.Y.S. 853 (1913);Brookford Mills, Inc. v. Baldwin, 139 N.Y.S. 195 (1913); Hopping v. GearMedicine Co., 153 N.E. 231, 23z (1926); McLarran; v. Longdin-BruggerCo., 157 N.E. 8z8, 829 (1926).